Well we had no choice but to take out our 401K We had rolled it over when my husband switched jobs. We thought we couldn't touch it because we didn't fit the criteria but the secretary at the retirement place said she found a loop hole and we could cash out the rollover amount at least just not the new funds since the new job. So we were relived. Well she said they take out 30% and on the paperwork it did say 20% taxes and 10% penalty oh and a $70 fee if under 59. So anyhow we got the check yesterday and they only took 20% out but no 10% penalty. Now Im nervous we really could use every cent but Im wondering if I still owe the other $5000? I don't think its on the tax forms end of year I think they were suppose to take it immediately? Anyone know anything on this or have any experience? Any help would be greatly appreciated?:confused:

Generally, the distributor does not take out the 10% penalty. In addition the 20% is only a witholding, not the actual tax. The actual tax will depend on your tax bracket.

I don't know what the secretary was talking about as a loophole. If you withdraw funds from a 401K and don't qulaify as retired or hardship, then you will pay a 10% penalty. Either way, you pay taxes on the money at your current tax rate.

I would see about returning the check and get the money rolled back in.

Thanks for the info

The withholding will go toward taxes though correct?
For example my husband pays say roughly 20% of his paycheck in taxes typically so ideally this 20% they took would roughly cover the 20% they will want for the 401k, we will only have to pay any differences right? There won't be any additional taxes on top of the 20ish percent taken as income "taxes"?

So the 10% penalty comes out at tax time then? SO I should set aside $5000 for when taxes come to cover the penalty?

By loophole I mean we weren't allowed to touch our funds - but since that money was separate we were allowed to touch that money. Typically she said you can't touch it unless its for medical bills or other specific situations. I guess its not really relevant either way to what Im trying to figure out - maybe she's nuts? I just thought it might have something to do with them not taking the 10% but apparently its not of relevance.

I don't want to do a rollover we are in severe debt and using it as an alternative to bankruptcy. Not sure I understood that part of your suggestion?

Thanks so much for the help please continue to inform me so I can do this right.

The 20% withheld is just like the witholding from a paycheck. It does not indicate how much taxes you owe. But the amount is applied to any tax liability you incur. So if you wind up owing $5K in taxes, and you had $5.5K in total witholding you get back $500.

I'm not sure how and when the 10% penalty is due. I would check with the IRS on that.

You would be better off ro9lling the money into the new plan and taking a loan against it then taking a distribution. A 401K loan is completely paid back to yourself including interest.

Okay thanks.

Im not sure how wed do the loan - considering its over 50,000 and were taking it all and to pay that back as quickly as a loan would probably allow is likely impossible for us. We do intend to put into our 401K still but unfortunately it will only be 3or4% for now which Im sure is less then a loan payment and we simply can't afford to do more. When we explained our situation they never offered that as an option. I guess even if there was a way its too late anyhow since we had already deposited it?

Thanks for all your help. Ill have to see if I can hunt down the penalty factoids, I really would like to know (I want it out of our hands asap and where it belongs:) where money sits emergencies tend to flock) - if you happen to run into any info on that please let me know.

Well I peeked around and it appears it will be on my 1040 - the penalty. I wish Id know ahead of time because I couldve had them take 30% out right away - there was an option to raise the witholding from 20%. Anyhow now I have to see if I can find a way to pay taxes early - I want this money in there hands and out of mine.

I am running for Congress and I would like to use your story to illustrate the pain felt by millions of people who have to pay the 10% penalty when they spend money from their 401k. Please send me an email at [email protected]. Thanks, Bryon Severns, Arlington, Libertarian Party of Texas

If anybody has a similar story and had to pay 10% penalty on their 401k, especially after losing a job, please contact me. Thanks